World Cup Mania: Figuring Out FIFA, Soccer &amp; Tax

We are in full World Cup mode at my house. My kids are huge soccer fans (you may know this if you're a regular reader) and they've been counting down to the first game (Brazil beat Croatia) for months. They've made posters and charts and insisted on buying souvenirs, including a stuffed version of the Fuleco, the armadillo who serves as the current World Cup mascot.

And predictably, they have peppered me with questions, mostly about FIFA since the initials appear on everything from Fuleco to the game balls. What is it? Who runs it? And their favorite question: who gets to keep all of that money?

I mumbled through some explanation about how it's sort of the NFL of world soccer and then realized that I wasn't actually sure about the details. So I did some digging. If you, like me, wonder exactly what FIFA is and what it does, here's the scoop:

FIFA is an abbreviated version of Fédération Internationale de Football Association, the international governing body of soccer. Soccer is, of course, called football everywhere else in the world except in the U.S., where we call American football, football.

FIFA has as its primary goal "to improve the game of football constantly and promote it globally in the light of its unifying, educational, cultural and humanitarian values, particularly through youth and development programmes." A truly international organization, it's been referred to as the "United Nations of Football." Today, it employs about 310 people from over 35 nations and consists of 209 member associations. That's a huge leap from its humble beginnings in 1904 when it served just seven member associations (France, Belgium, Denmark, Netherlands, Spain, Sweden, and Switzerland).

The management of FIFA is central, set up a bit like our own government, with a Congress (legislative body), Executive Committee (executive body) and General Secretariat (administrative body).

The FIFA Congress is made up of representatives from each affiliated member association. It meets about once a year and each of the member associations gets one vote on matters of importance no matter how big or dominant the association (so yes, that means that Spain gets the same vote as Cameroon). Generally, the Congress does exactly what you'd expect: passes the laws that govern the organization and approves the annual report (including the budget).

Presidents are appointed for four year terms by the Congress. FIFA's current President is Sepp Blatter, who has served since 1998. Blatter is only the 8th President to have served in the more than 100 years of FIFA's existence (Jules Rimet of France served an extraordinary 33 years in the mid-20th century). Blatter lives in Zurich, where FIFA makes its headquarters. He speaks five languages: French, English, Spanish, Italian and German and is considered one of the most influential men in the world, making Forbes' list of Powerful People at #69 for 2013.

The primary purpose of FIFA is, of course, to watch over the international game of football/soccer. That involves being a watchdog, of sorts, when there are allegations of impropriety, as well as helping set the rules of the game - although FIFA doesn't make the rules directly (that's the job of International Football Association Board (IFAB)).

FIFA is also known for handing out some pretty important awards. The most prestigious is the FIFA Ballon d'Or (the "golden ball"), formerly the FIFA World Player of the Year award, considered the top prize in the world for men's and women's soccer. If you follow soccer, chances are you know who wins the Ballon d'Or from year to year: it's that big of a deal. In 2013, the men's award went to Portugal's Cristiano Ronaldo (Real Madrid) with runners up Argentina's Lionel Messi (Barcelona) and France's Franck Ribéry (Bayern Munich). The women's award went to Germany's Nadine Angerer (Portland Thorns FC) with runners up Brazil's Marta Vieira da Silva (Tyreso FF) and USA's own Abby Wambach (NY Flash).

FIFA is most known, however, for organizing the World Cup. The first World Cup was held in 1930 in Uruguay (!). The timing had a lot to do with the lack of popularity of soccer in the US: FIFA was pushing for soccer to be featured more in the Olympic games and the 1932 games, held in Los Angeles, weren't even going to include soccer. FIFA took matters into their own hands and organized their own tournament, the first official World Cup. That year, only 13 teams participated. Uruguay went on to become the first country to win the tournament and they did so on their own turf.

Today, 209 teams from all over the world compete for one of only 32 slots available in the World Cup held every four years. The Cup is tremendously popular: it's been estimated that an accumulated audience of over 3.7 billion people watched the 1998 World Cup in France, including approximately 1.3 billion for the final alone.

So that raises the next logical question - and the one my kids want to know - how does all of that popularity translate into money?

FIFA brings in a lot of money. Most of FIFA's income is directly attributable to events like the World Cup. The 2010 FIFA World Cup in South Africa brought in USD $2.408 billion in television rights alone and USD $1.072 billion in marketing rights. The South African World Cup accounted for 87% of FIFA’s total revenue during the most recent financial cycle. The numbers are expected to be similar for 2014, which estimates reaching as high as USD $5 billion.

FIFA also benefits from licensing. Remember Fuleco, the armadillo mascot for the Brazilian World Cup? Branding mascots, game balls and other merchandise brings in dollars, as well. For the same financial cycle (2007-2010) of the last World Cup, branding alone generated USD $37 million for FIFA. Business ventures and investments round out the income stream, keeping FIFA financially healthy.

How does that compare to other sports? For 2013, a non-World Cup year, FIFA brought in USD $1.386 billion in gross revenue (report downloads as a pdf: be forewarned, it's 142 pages). For the same year, the NFL reported revenue of more than $9 billion. In terms of value, the world’s top 20 soccer teams have an average value of $968 million. American football teams are worth, on average, $1.17 billion each. (I know: it's not exactly an apples to apples comparison since the NFL and the FIFA are organized and valued a bit differently but trying to offer some context.)

So where does all of that money go? In most cases, it goes back to the organizational bodies, after expenses, for purposes of promoting the sport (at least that's what the documents say and what the statutes require). It's clear where most of the money doesn't go - and that's taxes.

FIFA is organized as a not-for-profit association under Swiss law. As such, FIFA pays no tax in Switzerland on revenues from the World Cup. Similarly, FIFA wrangled a number of outs for the current World Cup in Brazil. Specifically, under Brazilian law, there are "a series of exemptions on federal taxes granted exclusively: (i) to FIFA itself and related entities domiciled abroad; (ii) to FIFA’s Brazilian subsidiary and to the Brazilian Broadcasting Source; (iii) to FIFA’s service suppliers established in Brazil; and (iv) to non-resident individuals hired or engaged to work in the events."

That's no fluke. FIFA pursues tax exemption from every country agreeing to host the Cup. The bidding process for upcoming host countries requires "a comprehensive tax exemption to be given to FIFA and further parties involved in the hosting and staging of an event." The exemptions included freedom from corporate tax, income tax, VAT, excise duties, local tax, and any other taxes, no matter what other tax laws might require.

It's difficult to tell how that translates into exact dollars. For this year's Cup, Brazil's Internal Revenue Service has estimated that the exemptions will cost the country USD $248.7 million in lost revenue (other guesses are twice as high). Some consider that a "full subsidy" of the Cup by the host country - which is why you've been hearing about a number of protests around Brazilian - in particular, in Rio - during the Cup. Some Brazilians believe that FIFA should contribute more.

Supporters of the Cup are quick to point out that Brazil will actually make more money than it will give up in tax dollars. In addition to tourist dollars, including packed bars, restaurants and hotels in cities around the country, prize money earned in the World Cup is taxable in Brazil, according to FIFA. Total prize money is expected to hit US $576 million with USD $35 million to the winning team; runners-up will take home USD $25 million, with third and fourth gleaning $22 million and $20 million, respectively. Even the eliminated teams take home some cash: those eliminated in the first round still pocket $8 million each. With those figures included, Ernst & Young estimate that the tax boost to Brazil will be in the neighborhood of USD $8 billion.

Still, some taxpayers believes that all World Cup-related revenue should be taxed. The dilemma of whether to tax the revenue from sports isn't restricted to Brazil or Switzerland or FIFA. It's something that countries around the world grapple with all of the time. In the U.S., for example, there are 3,857 tax exempt organizations with the word "soccer" in the name, according to IRS' Select Check - including the U.S. Soccer Federation. Depending on the exact status of the a 501(c) organization, it may not only be exempt from paying tax but also eligible to receive tax-deductible charitable contributions.

The idea, of course, behind offering tax exemptions is to promote sport. In the U.S., this can land a sports organization under section 501(c)(3) for purposes of fostering national or international amateur sports competition (think Little League) or under section 501(c)(6) as a trade association (think NFL). Whether you think the exemption is deserved likely depends on your view of sport generally - and perhaps, the specific sport. While the major league organizations for soccer and football enjoy some degree of tax exempt status, the National Basketball Association (NBA) has never been tax exempt and Major League Baseball (MLB) gave up its exemption in 2007. American football, which is tax exempt, is bigger than basketball not only by revenue but by popularity (in a recent poll, 36% claimed pro football their favorite sport compared to 5% for basketball). But American football is still, well, American.

Globally, however, soccer is the most popular sport in the world. The NFL boasts about 1,700 players: the US counts 4,186,778 registered FIFA players alone. Just before the last world cup, FIFA reported 265 million male and female soccer players in addition to five million referees. That's a grand total of 4% of the world's population who are actively playing soccer. Fan estimates across the world total about 3.5 billion fans - or nearly half of the world's population.

The biggest holdout to date has been the U.S. and maybe things are turning here, too. Americans aged 12-17 cited soccer as tied with baseball in terms of popularity. The interest is there despite the fact that the U.S. isn't expected to win big this year - even Coach Klinsmann thinks so, saying, "We cannot win this World Cup, because we are not at that level yet."

But that's what is so great about the World Cup. It's about the game and the players, not simply about the individual country. It's about Neymar firing up his native country with an opening win; it's about Twitter exploding when Dutch player Ajen Robben practically offered up a soccer clinic to a stunned Spain; it's about Drogba leading Ivory Coast over Japan in just its third World Cup ever (the only African team to go three times) and it's about the entire Colombian team breaking into an impromptu dance after scoring on Greece.

Unifying. Cultural. International. Sounds like the World Cup is, so far, doing exactly what FIFA said it would.